How to best invest in Germany, Roger Peeters of pfp-ADVISORY?

Roger Peeters of pfp-ADVISORY joined us for a deep dive on investing in Germany. Here you can learn a lot about this European market.


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[00:00:39] Tilman Versch: Hello, audience. Hello, Roger. It’s great to have you here today. Roger is a good German investor. You’re in Frankfurt at the moment.

[00:00:47] Roger Peeters: Exactly.

Crisis’ in the past 15 years

[00:00:48] Tilman Versch: Yeah, it’s great to have you here.

Let’s start with taking a look back and you have these 15 years of history of running a fund successfully. I’m also happy to show the chart of the fund for the people who want to get an idea of how he performed since its inception. And in this chart, you see many break-ins and we are currently in a phase where we also have a certain stock market break-in with the Ukraine crisis and inflation varies. Maybe let’s take a step back.

And I want to ask you, in the last 15 years as a fund manager, and if you remember your chart, what crises have you experienced then, what kind of crisis were they? Maybe you can say some of the crises you’ve lived through.

[00:01:34] Roger Peeters: I can do it. Once again, hello. Nice to meet you again, Tilman. And to answer your question, I think I would even start before the fund has been launched, because I’m active in the stock market for almost a quarter of a century or so, roughly 25 years. And as you mentioned, during this time you experience a lot. You see good times and bad times in terms of increasing or decreasing stock prices or stock markets. And of course, I have, my experience is affected by the bigger crises. I would underline maybe three or four.

I would focus first on the worst of the bubble at the beginning of this century, which is something people currently remember a lot because the situation could be similar. We had also a bubble in the tech sector, as we had maybe in the US 2020-2021, and we had a long bear market, which we did not have since then. We had a bear market over a few years, which was really, I would say, a dramatic experience for many investors.

A similar experience I had also in the financial crises, of 2008-2009. It was not that long, you only had to survive a bear market of saying one and a half years. But it was also affected with, I would say, some strong decreases all over the market. But also in the recent past, we had some, I would say, stress tests which we have experienced. One was really– both have been really short, I would say.

One is at the end of 2018, the stock market has plunged only in a few weeks, I would say. In the first quarter of 2018, the stock market has developed very negatively. This is relevant for the current situation maybe also because the reason these days has been fear of increasing interest rates. So something we are also discussing currently. We have discussed it a little bit less since we had turned the focus on Ukraine.

And the last, I would say, a negative experience I met was, of course, the corona crisis in February and March 2020, where the stock market has also plunged in four weeks roughly, sorry, sorry 5%. And what I can assume to all this, I would say, negative experience, negative in terms of decreasing prices, normally the end, you never know the end during this time.

So from my view, from my point of view is important for any investor of a retail or institutional investor you keep in mind that bear markets are not the end of the world. So it’s part of the stock markets that the prices can also decrease, and these days this does not feel good, but it’s part of the game and you have to experience it. So that’s all, maybe this answers your a little bit your question.

Impact on the style of investing

[00:05:10] Tilman Versch: Yeah. One crisis you even like didn’t mention what’s the Greece crisis, the debt crisis. It’s not like this question wasn’t about collecting all the crises you’ve experienced, but it’s interesting, like in hindsight that it doesn’t matter that much anymore. How does this– how have these crises shaped or impacted your style of investing? Is there anything you’ve changed substantially after the crisis?

[00:05:37] Roger Peeters: No. I have to say, I’m doing this stuff together with my partner, fellow Christoph Frank, and we are really focused on a clear investment scheme that is long-only so that we have, I would say, clearly impacts on the markets. We do not try to neutralize the market effects. We do not do any market timing.

So it’s more or less automatic that you have in such days, like I have mentioned, decreasing net asset value in the fund too. What we are doing is focusing more on the companies. We are doing a clear bottom-up approach. We are really strong believers in the system where we focus on the companies and the quality of the stocks in companies.

And of course, in such days, as you mentioned in 2011 or even in 2018, we have mentioned all these negative phases. Also, good companies are affected, and also cheap stock can become even cheaper. But our approach is not to optimize the market timing. I think we would, it would cost more than we would get a return.

And the only one thing I can tell you that I took as a lesson that was also part of your question is that you learn to stay calm, even in crisis situations. As you mentioned, your added 2011, we could add a lot of more small situations. For example, in the year 2016, we had several experiences. We had the Brexit vote in the UK, we had the Trump election in the USA, we had worries about the Italian fiscal situation, and all these situations lead to a short-term plunge in the market.

And you cannot be safe on this. You have to experience that markets increase and decrease. And you should not, from my perspective, you should not focus on your investment style on these short-term developments. To answer your question, no. I think we learn to stay calm, but we didn’t change as investment systems. For sure we did not do this because we think a good investment system should not be changed after a bull or bear market.

Using a diverse investing style

[00:08:27] Tilman Versch: Have you shifted to certain stocks more, like more quality after the crises, or was it already in your approach?

[00:08:37] Roger Peeters: I would say, to argue a little bit with our investment style in general, we have a flexible system. So we are not pure growth investors or pure value investors, we try to put both worlds together, both approaches. And if I look to the past, for example, the fund had example, a stronger value approach at the end of the zero decades. So in the years 2007, 2008, and 2009, we add more value concentration, so-called value because this is not a crystal clear what is a value stock and what is a [00:09:23 –inaudible], you know this.

And during the years, I would say, from 2015 to 2021, we had clearly a growth focus in our strategy, but this was not decided top-down. This is always derived when we judge all the single stocks in a bottom-up approach. It’s really important to underline this. So the allocation is not the decision, the allocation is a result of a lot of single decisions on I think several stocks. And to answer your question, obviously, you have some changes in a flexible system. There are times when you should be more invested in growth stocks, and there are times when you should be more invested in value stocks.

There are times when you should invest more in bigger stocks or from bigger companies, and there are times when small caps are more interesting. And we are focused and we are not flexible on the core market. We just only look at the German market because we are local players. We have some local knowledge and we think it’s clear. It’s important to have a clear field where you act. But within this field, of course, we are flexible. And yes, these proportions change.

The German market

[00:10:55] Tilman Versch: So maybe outline a bit why you’re just focusing on Germany, and also on companies that take a lot of the revenue in Germany.

[00:11:04] Roger Peeters: Yeah, I would say, yes to the first no to the second. Let me please argue, okay. Our focus is not necessary. We work also with a quantitative system, we could also use, I would say, for the US market, or for the French market, or for the Greece market, whatever. And whenever you have solid figures to judge, we could do this also for stocks from other countries.

But in Germany, we can also add our local expertise, you have to know Christoph and me, both of us, we have each of us, I would say, three-digit number, each year of meetings with companies in this market. So we have a really clear local access to the management board to the deciders in the company. I would say in Germany, you have roughly about 800 listed stocks.

And, I would say, during the last decades, we have met almost all companies. There are lots of companies which are at the stock market for 20-25 years, and we have seen management changing. So this experience and this knowledge, we would not have the same way as when we would judge Vietnamese or Chinese stocks, for example. This is, I would say, an advantage we want to use in addition to the quantitative system.

The second question was that you say we focus on companies which make a lot of their revenues and their business in Germany. And, I would say, this is not the case. I think we have really had a few decades of strong globalization during the last decades. And what we have seen is there are no more really typical German companies. A few, yes, more or less, but most are clearly European companies. And very many are really global companies.

Just to give you an example, a prominent example, if you look at Adidas and Puma, which are both headquartered in Herzogenaurach which is really a small German city, and their headquarters are close to each other all the history, but as they’re doing almost all their revenues aboard Germany, they do almost all the production aboard Germany. It’s not a German company, neither Adidas nor Puma.

And you have this with a very lot of companies. You see this currently because many companies have some problems with their supply change. Then you can see the dependent, how dependent they are on how it works in China or Taiwan or whatever. And this is a globalized world, and in Germany, you have a headquarters, but often not more. You normally have really a strong international impact.

For the last example, Deutsche Telekom you would assume this is really a German company, but I think their US business is really very relevant for their figures and also for the development of the share price. So I do not see these as local companies, but we are happy to have the possibility to meet these companies, the leaders here, and to have strong access to the companies. For these reasons, we focus on Germany, and it’s also maybe I can add this question of credibility.

And I think if I tell our investors that we have some knowledge of the German market, they will say clearly yes. If I say, “Okay, tomorrow we launch also a Vietnamese fund,” they will say, “What can you do better in Vietnam that other guys do for a reason.”

Meetings with CEOs and board members

[00:15:13] Tilman Versch: You mentioned these meetings you have with CEOs, board members, and experts around the firms, how are they usually structured? What are the topics you discuss there, and what interests you in these discussions? Is there a usual or is it also very dependent on the company?

[00:15:31] Roger Peeters: Yes, it is dependent of course, but there are, I would say, some regular ways how to meet. I have to underline during the last two years, this has been developed a little bit differently. Like our whole life, we have switched much more to the digital world, as we discuss here in a video conference. We did it also a lot during the last two years with companies. And many conferences, which are often organized by banks, but also organized by other firms which are focused on this have been set up in a digital way during the last two years.

So very often, companies have presented on the screen, and you have the possibility to ask in a video conference or in the chat function as we have here. And even the capital market days, normally listed company does one time a year of capital marketing, where they invite analysts and investors to have a closer look at the environment and see the buildings and so on.

This has switched to digital CMDs over the last two years. But now this is switching again, I would say, assume that we have 2022 many more physical meetings. Last week, for example, I took part in a conference, analog conference in Hamburg, where I met for two days, I would say, roughly 20 board members of different companies. They had one-on-one meetings in a hotel room where we have discussed, this was another question for you, what is the content of such meetings? This is clearly dependent on the investors’ approach, I would say, and also on the company’s approach.

We, Christoph and me, are clearly focused on the figures. We like to judge by figures and we do only invest if the figures convince us. So we discuss a little bit more on figures maybe then as I would assume, as investors, I would say, act more discretionary, they Judge more the business model and the future potential of the business scheme. And so maybe this is more a little bit more on the products, but of course, we try to put everything in also in our conversations.

You also have to judge the market situation of the company. I mentioned the current situation which is really often part of the discussion in 2022 and also during the last year already, is inflation and the supply change. I would say, this is crystal clear that most urgent topic for many companies, how do they handle increasing costs and can they transport this to their customers. Are they strong enough to accept prices? And this is something you can go into deeper into the details with the companies normally.


[00:18:46] Tilman Versch: Interesting. You also mentioned that you have a network outside of the companies where you not only talk to the board but also get background information outside. How have you built this network?

[00:18:59] Roger Peeters: When you’re in the job for 20 years, of course, you meet a lot of people and you’re in touch, and it just, I would say, it’s a normal consequence of doing this professional business since more than 20 years. I’m not that young like you and even others anymore. So I have in contrast the advantage to have a lot of, I would say, experience in this market and then, I would say, more or less by nature you build up a network.

But to bring this in into the wide dimension, I would say, it is more important to judge the company than the Network. I like the network and I work with knowledge outside, but we crystal clear here focus on judging companies and shares, and the network, I would say, helps, but not more.

Must-knows of the German stock market

[00:20:02] Tilman Versch: If there’s a non-German investor approaching you to ask you questions about the German stock market, are there any key topics you have to explain to them because they naturally don’t understand them because German is different for investors?

[00:20:18] Roger Peeters: Yeah, interesting question. I think on the one side is what I mentioned this is not, I would say, local players. So if you invest in Siemens, for example, or buyers are international companies where you have, I would say, a broad field where these companies act, but of course, some things on some issues are typical Germany also for the German stock market.

A typical thing I discuss with potential or existing investors who are not in Germany is if they invest in a product of the German market, they have to make more or less some compromises because there are a few industries we do not have. We do not have an oil industry, we do not have any gold mining, we do not have several things, several industries, but not too much. And I have to say, in these days where people are not that happy to invest in coal and oil, and also all this stuff, it’s not a disadvantage that Germany has no oil companies, for example. But this is in contrast to other European, I would say, nations.

And what I also have to say is that for this reason, I think you can do a single solution for the German market. The stock market is wide enough that you have, I would say, most industries, and not all, as I mentioned, but a lot of. This is much easier than when you judge really small nations, I do not want to blame someone, but just, for example, Portugal, Greece, or Poland are smaller. And then you have not said what a range of different companies like you have in Germany.

What you also have as a disadvantage in Germany, you should know, that the share of the listed companies in contrast to the economic strength of a nation is, I would say, improvable. For example, in contrast, if you compared Scandinavia, with Switzerland, or with UK, they have many more listed companies, and I’m a little bit jealous of this. For example, the Swiss guys really have a lot of listed companies for a small company, but maybe this will change in the future, we will see.

Interesting unlisted companies

[00:22:48] Tilman Versch: What companies would you love to invest in if they were listed that are currently not listed? If there are some names that come to your mind.

[00:22:56] Roger Peeters: You are asking for companies that we are missing, which are not listed yet?

[00:23:00] Tilman Versch: Yeah.

[00:23:02] Roger Peeters: I cannot say this because it’s not that we are dependent on the business model, but I can give you maybe as an example, we had for example, in the first seven or eight years since the fund was launched, we have been invested as a non-stop in WMF which is a manufacturer of several kitchen aids, coffee machines and so on. And the company has been delisted. It has been bought by private equity, which is not what we are in Germany over the last 10 years. And this was something we would have also to remain invested in these days, but this is just an example. Normally, I would say, the market is broad enough and I do not really miss something.


[00:23:58] Tilman Versch: If you think about the German stock market, Wirecard is also a topic that has become… Yeah, it’s hard to find the right words for Wirecard. It’s a strange topic in the recent German stock market history. If a foreign investor would approach you and ask you for areas in the German stock market he or she should stay away from, what area would you say that are just like not that of higher quality like not comparing it to Wirecard, but you have this kind of big fraud case still in mind.

[00:24:33] Roger Peeters: Yeah, okay. I have to underline we have never been invested in Wirecard. Maybe I should mention this in advance. But nevertheless, of course, I have had always also a view on Wirecard, especially in this day when the share price of Wirecard really has skyrocketed. And you have some time to explain to investors why you are not invested in this company.

[00:25:00] Tilman Versch: Why were you not invested in Wirecard? What was your reason?

[00:25:03] Roger Peeters: I would say, a lot of questions have been raised these days and have not been answered yet. I think the easy answer is also that the share price of Wirecard was not really cheap. But also, I would say, the financial reporting was a little bit, I would say, somewhat strange. And the answers and the way how they acted with critics was never ever so, I would say, convincing.

And you have to know, in Germany, Wirecard has been discussed since the first time, I would say, they have been listed by a shell company in 2005 or 2006, I think 2005, and the first time they have been really discussed hard was 2008. So this was long before it really, I will say, a burst.

And to come back to your question, I would answer more in general. And a similar case, I think fraud happens not only in Germany but in many countries. You have also a lot of fraud discussions on bigger companies also in the US, the UK, and China. So we should not say this is a dedicated German problem, from my point of view. Also not an Austrian problem, too.

But what I would say in general, is just as an easy role, you should only invest in companies you really understand. You have to understand what they are doing, and how they earn their money. And this is, I would say, something where you could have had some problems in Wirecard to answer in this example.

And you see this in many big fraud cases. If you remember 20 years ago in the US and one very good example, I would say, even bigger than Wirecard, if you have asked me 20 years ago if I could explain what anyone is really doing, I could not explain it to you.

And if you ask me, how is Wirecard exactly earning this money and this margins four times higher than the other companies? It’s always hard to understand. So it’s helpful– No investor can say that he or she is always sure about fraud, but it’s helpful to understand the business, to try to understand. And of course, the second protection is diversification in the portfolio. If you go all-in in one stock, this is always dangerous.

Areas Roger does not understand

[00:27:41] Tilman Versch: To follow up on this, which areas of the investing universe you have you don’t understand, which are the areas where you say, it’s interesting businesses but we can’t understand them?

[00:27:57] Roger Peeters: Yeah, okay. I have to say Christoph and, we’re both are generalists. So if we go into deep details on, I would say, is anyway chemical business, renewable business, or even the consumer business, normally I would say, some experts like sales analysts always have a better knowledge on the single industry.

So our approach is not that we say we have the best knowledge on a single sector, but our need is that the business can be explained as I mentioned, and also that the success of the company can be seen also already in the figures. We are not doing any we see business. We are not investing in companies that start to earn in five or six years their money. So what we are doing, we invest more or less in all sectors, but some, I would say, are difficult.

I’ll give you an example, the typical biotech company starts to generate say it’s in five or six years and as an investor who’s focused on, I would say, solid earnings and returning earnings. This is not typical. So we are more or less, I would say, agnostic to all industries.

We look at everything, but if it’s not built by the… is not visible by the figures, we do not invest. And I would say, the business model should be comprehensive and should be understood in each industry. And this is also, I would say, a need for investor relations, to explain it to not only an expert but also to, I would say, a silly investor like me, what is this company doing and how is his company earning? Of course, sometimes people, I would say, flee in technical discussions and say, okay, this is really, I would say, an angle technical approach, which we have as the only one in the market, but then we want to see the result as the earning from this advantage.

Defining “Mittelstand”

[00:30:29] Tilman Versch: Interesting. You have these two fund mandates, one is called Platow and one is called Mittelstand just like may name the short topics that are in the names of the funds. What is your definition of Mittelstand and why is this mandate different, or how’s this mandate different from the other mandate you have?

[00:30:50] Roger Peeters: Yeah, yeah, we have no clear… not that we have a clear, I would say, a franchise that we say, okay, everything below one billion market cap is a small-cap and everything above one billion just for example is a large caps, this would be too technical. But indeed, the key difference between our both products is that the second fund which we have launched much later is focusing more on smaller companies.

Also due to the fact that the fund is much smaller, and is more flexible in this, I would say, we have the same strategy, we have the same market. Both funds invest only in German companies and we use the same investment scheme. But we focus a little bit more on the smaller companies in the one fund and a little bit more on the bigger and mid-sized in the other one.

And of course, there was an overlay. I would say, 50-60% is changing, but I would say, the PFP at the Mittelstand is a little bit, I would say, even more, focused on the same strategy, it’s more concentrated also. And so you have the impact a little bit stronger, positive and negative impacts, for example of the development of companies. But normally both funds base on the same or have the same basement in our knowledge of the German markets.

[00:32:38] Tilman Versch: And what is your definition of Mittelstand and then for the smaller fund or…?

[00:32:44] Roger Peeters: As I mentioned, we do not have. There are companies that generate sales of more than a billion euros and still, I would say, more or less Mittelstand because their whole attitude to the capital markets is a little bit more, I would say, Mittelstand focus. They are often– Mittelstand is also something, an expression which you use more often if the founders and families are more family-owned.

I do not have a clear binary judgment on this that I say, this is black and white, and this is Mittelstand, and this is large-cap. Mittelstand by nature are smaller companies, more often dominated by families, as I mentioned, and are also more often focused company with this dedicated business and not a conglomerate.

Understanding the “Mittelstand”

[00:33:51] Tilman Versch: So you mentioned this orientation to the capital market. Maybe this is also a thing. It might be interesting if you want to understand the German capital market. Is this like in Mittelstand companies that have huge family ownership?

Is there a strong capital market orientation or are they more like, you have to build trust over time to get access, and they aren’t like really into presenting to the capital market that much?

[00:34:19] Roger Peeters: I think, yes, and no. I think, indeed in contrast to the huge international companies which are mostly part of the ducts in Germany, I would say, many Mittelstand companies are not that familiar with the capital market and they act a little bit more cautious also on the whole communication and in their attitude to the financial market they see. But I have to say these companies which are listed off the Mittelstand are already the more progressive companies, which have at least a minor positive attitude. They would not be listed if this is not the case.

And I think, in Germany, in general, I would say, we have still to build up a little bit more capital market culture. It’s already mentioned as a difference between Scandinavia, the UK, Switzerland, US, of course, but I think this is developing. If I remember 20 years ago, what I have seen in communication, what I have seen as standards of how to communicate with investors with capital markets, I think we have a good development overall. I’m not that negative on this, but what I see is sometimes there are a little bit more cautious, but this is not a disadvantage in general.

Because sometimes this goes along with, I would say, an attitude that the owners and the managers do not want to impress the capital markets over the next six months, but they want to develop the company over the next 5 or 10 years. And as an investor, I would say, fundamental investor, I like this attitude. I do not want the companies to beat the expectation each quarter by nature. This is more or less, I would say, a game which we see sometimes also on Wall Street, but also in Germany, which is not as fundamental as I like it. What we want to have is that people really develop the companies and these Mittelstand companies, I would say, especially if they are partly owned by the founder families, you see it often this approach and I like it.

Number of companies in the portfolio

[00:36:46] Tilman Versch: Maybe let’s take a look at your portfolio now. And you sent me a chart, which I’m showing here that’s listing your top 10 positions, but maybe zoom out a bit, how many positions do you usually have in your funds?

[00:37:01] Roger Peeters: Yeah, in the DWS Concept Platow, we normally, I would say, a broad range between 35 and 60 companies. Currently, we have 54 companies in the portfolio, in the pfp Aktien Mittelstand Premium they are more concentrated with normally less than 30 stocks in the fund.

And what you have shown now is the top 10 holdings at the end of the year 2021 which I would say, had at this day less than 40% of the fund, which is in comparison with our past, I would say, was less. Normally, I would say, the top 10 holdings have roughly 45% up to 50% of the portfolio. Normally we like to have a clear investment, but the situation was a little bit different. So, however, this is what you refer to, yeah.

Factors for sizing

[00:38:06] Tilman Versch: How do you go about sizing? Why don’t you decide like for instance an STO has 4% and Cewe or 2G Energy, you also don’t have in the top 10 list or like Cewe is in the top 10 list. Are size less, what are the factors that contribute to this?

Roger Peeters - pfp ADVISORY Portfolio

[00:38:24] Roger Peeters: Maybe I’ll explain a little bit more about our investment scheme. We really, as I mentioned, work with a quantitative approach, which my partner has developed more than 25 years ago. So it’s a really long-enduring system where we focus really on a lot of financial figures and ratios.

And we make a screening on the whole German market. And then this screening filters down to, I would say, an investigable number of companies where we have to judge then in detail and to have to look into the details. And I would say we work with a scoring system, it’s a binary system that you will say, okay, fits the score or it’s not, and the best score at all is zero, that you have no negative reach in the system. And if you have this score from zero, this would lead the vertical at least to a high proportion in the fund, because you say, okay, this fits to our systems almost perfectly right now. And of course, this is the weight in the fund is a result of our personal, I would say, view on the stock and the existing chances.

But of course, it’s also, I would say, development. This is also a consequence of market development. If you have, for example, I would say, 3% of the fund in the company, and then the company and the share price develop very good and doubles and the rest is steady stage ceteris paribus, then the share of the fund is almost doubled up to 6%. And this is something which is also reflected.

What we do not do is automatical rebalancing, like some funds do, that they say, okay, we have 50 positions each of 2% and whenever something develops good, we carry it and something develops better, we bought instead, this is what we are not doing. So what you see the weights are also consequences of the share price developments.

Picking themes for investing (community exclusive)

[00:40:49] Tilman Versch: Is there also a thematic focus in the way you build your fund like you have if you go through this top 10 list. They are STO, there is VERBIO, there is also like some energy names in your documents, or there’s also like the digitization as a topic that’s coming up with Adesso or Bechtle, or also mentioned Mensch, mentioned Maschine, is it just like your system picks this names and they are generated by this or is it like that you also have their interesting topics where we might see more growth as usual in Germany, so they become a…

Hey, Tilman here! I’m sure you’re curious about the answer to this question. But this answer is exclusive to the members of my community, Good Investing Plus.

Good Investing Plus is a place where we help each other day by day to get better as investors. If you are an ambitious, long-term-oriented investor that likes to share, please apply for Good Investing Plus. I’m waiting for your application.

Without further ado, let’s go back to the conversation.

Sticking with traditional “boring” companies

Maybe from the list of these top 10 positions. It sometimes feels a bit boring to look at your portfolio because it had like boring plannable companies like, why are there no stocks of like for instance, e-commerce, we had this interview with Home24 recently or other like global fashion group or gaming companies in this space that might be also attractive investments.

[00:42:27] Roger Peeters: Yeah, to bring a little bit more light in our approach, to underline what we like and what we do not like, in contrast to other stock pickers, I would say, because some are looking really on the best situation that they look at the very beginning of company development or even in a turnaround situation where some fund managers focus on companies which have become very cheap and now everything is turning into the better situation.

This is what we are clearly not doing. Say it in simple words, we invest in companies where we would enjoy that the next days are very similar to the last days. So all these companies are already in a good situation, we do not invest in loss-making companies for example and we do not invest in companies with stressed balance sheets, with overloads of debt for example. These are things we do not do.

And we do not invest in stories, I will say story companies if you understand what I mean. This is because the company has not yet a business model, but they have an idea. You have some time this on the stock market, where the company shifts their business extremely. Like for example, it is a boring real estate holding, and it may make the decision to change everything, and now they want to sell all the assets, and now they want to invest in Bitcoin, or in the mining of infrastructure, whatever.

This would be clearly something we would not like. We want to have really continuous business. We want to understand the business of the last years. And we think that these companies are stable enough that they can continue also. Maybe this cuts a few opportunities, maybe, but it clearly cuts also the risks, and in the end, it’s a game where you have to look at both.

[00:44:44] Tilman Versch: So HelloFresh, or something, wouldn’t be part of your portfolio because like the criteria don’t fit?

[00:44:51] Roger Peeters: Currently, so far the criteria have not fit, yes. This is maybe an example, I would not say. In the future lot of things can change of course, but with regards to the current situation non, I would say, in this concrete example, the valuation is not as that as we’d like it, and also the track record of the past. If the company will reach situations that they really have earned for several years in a sustainable margin, this is different. So I cannot tell it for the future. As I mentioned, we are open-minded to everything, but in the past, we have never invested in this company yet.

Focusing on growth

[00:45:44] Tilman Versch: To better understand this, so like a valuation approach where you just like focus on the unit economics and say if a certain growth happens, this unit economics turns very positive earnings, isn’t like a thing you do, it’s more like you look at the quantitative factors of the existing earnings for instance.

[00:46:03] Roger Peeters: Yes, yes, you’re right, but I have to add we are not a value fund. We have in our investment team also a lot of growth figures, but we want to see the growth in the existing business which is a little bit different to the, I would say, the story stocks where I said everything will skyrocket over the next years but not yet in the past.

And, I would say, what we are looking for is really a comfortable compromise between value and growth. So you have a sustainable solid balance sheet and not that many risks on, I would say, high debts, lots of goodwill and so on and so on what you can have, but this in combination with really steady growth has not been strong growth, but steady growth over many years this is important for us. And overall we want to have also that the stocks are, I would not say cheap, but affordable.

For example, there was also one name on this investment strategy called a GARB, growth at a reasonable price. This is a little bit like we are acting. I think in the end, we want to really say it does not have to be cheap, but the price has to be justified.

Is growth profitable?

[00:47:39] Tilman Versch: To follow up on the last question on this point. So yeah, does growth have to be profitable? Because sometimes if you grow you have to invest a certain amount, but then you see it’s okay. If it’s growing, we see this scale effect hitting in at a certain point.

[00:47:55] Roger Peeters: Yeah, this is a good question and normally this is a trail off you often have in. If you want a company is exactly what many companies have to decide. Shall I invest in marketing and then have less margin and so on and so on? I would say, if I look at the consequence of what we have invested, it is fine that companies invest a lot in growth and have fewer margins, but at least the business should remain profitable. This is what we see. If companies really invest that much as they are creating huge losses, this is not our, I would say, typical industries.

Example Sto SE: What makes them interesting

[00:48:46] Tilman Versch: Great, maybe let’s take a look at two titles for the end. Let’s start with STO, what is the company doing and why is it interesting for you as an investment?

[00:48:59] Roger Peeters: Yeah, it is a construction supplier. STO SE, I would say, make systems of building coatings. So they gain some profit on all this discussion on reducing energy costs in the housing sector, and they distribute also on the building of new buildings, but also on existing buildings. And what we have seen our decision is, as I mentioned, not story-driven is not top-down on the sector, but what you see in this stock is that you have really a solid and enduring and, I would say, steady growth over the last years. I would say, the company is growing internally not via M&A.

And all this is, I would say, combined also with, I would say, a valuation which is not that higher. You currently pay two times the… I have a price-book ratio of 1:2, which is, I would say, not that high.

Also in comparison, the market cap was EV, business sales are rather a cheap comparison, just to give you two examples of the valuation. So I would say, it’s a moderate price for a company with a good market position. And it’s a market where you can understand that the company will be able to increase also their earnings and their sales over the next years.

Of course, they have also like other companies some worries about their costs and their supply chain, but I would say, this is something you have as normal currently. But if you would ask me to say what is currently SWOT analysis, I would also underline this. But to come back to your question, I would say, is a typical example which fits our investment system.

Example Bechtle: What makes them interesting

[00:51:20] Tilman Versch: And maybe let’s also take a look at Bechtle. Why is it interesting for you as an investment and what is the company doing?

[00:51:27] Roger Peeters: Yeah, this is the IT company, which is one of the leading in Europe, I would say, was more than six billion revenues a year. And we have it the company, the share in the portfolio, I think since 10 years or something like this, as a core position. And a similar situation as we have a lot of digital, or you could also argue top-down because you have a lot of digital in the companies, also in the public sector. Bechtle is also servicing the public sector with a strong intention.

And what we see is also since, I would say, since 10th year, really steady growth was, I would say, organically between 5 or 10% each year, last year was I think 7% organic growth, mostly organic growth, and also improving margins over the years. And really a business where you can see or when you can assume that it will not end this year because the perspective is still there. And the valuation overall, I would say, it’s not cheap anymore.

If you just look at how the stock has developed over the last 10 years. It can’t be cheap in all figures, but, I would say, is still on a level where you have also some chance which we see. So typical for us is not a company which develops in a skyrocketing changing environment, but it’s, I would say, in a constant way. This is something we like.

Founder families as a factor?

[00:53:13] Tilman Versch: Very interesting. Both companies have founder families behind them, maybe it’s just me picking them out, but are founder families or people who just like, stay behind the company and hold them for the long term an important factor in your business decision?

[00:53:31] Roger Peeters: I would say, it’s not an important factor in our investment decision. But it happens really often and it’s always also interesting for us that we see our systems often lead to companies with a strong stake in families.

And obviously, these companies are led in a way like we like it, not the short term effects, not the short term consequence which you see sometimes in, I would say, management linked companies where the management wants to optimize its bonus for a short term development. But what we like more is sustainable development.

And if I have a look at our portfolio, not only now, but also in the last years, I would say, we had always in this proportional high footprint of these companies, yes. It’s typical nothing we want to reach or we have a look on, but I would say, it happens often.

Advice by Roger

[00:54:44] Tilman Versch: For the end of our interview, is there anything you want to add about investing in Germany, your approach, something general?

[00:54:51] Roger Peeters: No, what I can say to any investor, is to come back to your question really in the beginning, I think good advice, if I may give advice, is always to look on long term developments. Because by nature, human nature is to discuss oh, what will happen in Ukraine or what will happen with the interest rate. And in the morning, you look at the newspaper or online screen, and you are affected by the current situation, which can change very, very fast. And I would think investing is something different.

Investing is something you should do really for many years or for decades. You should not invest in a strategy, for example, like ours, with a horizon of less than 5 or 10 years. And stock markets do not work in this, I would say, volatile. Of course, there are traders in the market who like it, but this is trading, this is not investing. Investing, and I think this is also a part of your channel, is something where you should have really a long horizon. This is what I would say as in general indoor advice.

Thank you

[00:56:07] Tilman Versch: And thank you very much for your insights and your wisdom on the German stock market. Thank you and also for the audience thank you for staying here.

[00:56:12] Roger Peeters: Thank you a lot, Tilman. Goodbye.


[00:56:15] Tilman Versch: Bye-bye. As in every video, also here is the disclaimer. You can find the link to the disclaimer below in the show notes. The disclaimer says, always do your own work. What we’re doing here are no recommendations and no advice. So please always do your own work. Thank you very much.

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Tilman is a very enthusiastic, long-term investor. Over the last years he has taught himself important investing concepts autodidactically. He tries to combine a positive climate and environmental impact with his investments.
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